CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: TEACHER’S RESOURCE
12 Reasons for
government
interventions in
markets
Teaching plan
Topic
Approximate
number of
learning
hours
Learning content
Resources
12.1 Market failure
4 hours
What is meant by the
term market failure?
Coursebook
Economics in context
Activities 12.1–12.2
Think like an economist
Exam-style questions multiple
choice 1–5
Exam-style questions unit 3 essay 2
What are merit and
demerit goods?
Why does the provision
of merit and demerit
goods lead to market
failure?
Workbook
Key skills exercises 1–11
Practice questions multiple choice 1,
essay 1, 2
Topic worksheet 12.1
BACKGROUND KNOWLEDGE
••
The reasons for government intervention are derived from the concept of market failure, which is
discussed in Chapter 13 of the Coursebook.
••
However, in order to ensure the best possible understanding of market failure it is essential that
learners have a solid understanding of ‘market success’ or what an efficient allocation of resources
means. To enable this, you should direct learners to their previous work on:
••
1
••
consumer and producer surplus (Chapter 11)
••
market economy and planned economy (Chapter 4).
Learners should be familiar with the terms excess supply and excess demand, which were covered
in Chapter 10.
Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: TEACHER’S RESOURCE
LANGUAGE SUPPORT
••
This chapter begins to pull in all of the previous microeconomic material and, as a result, learners’
technical understanding of concepts needs to be solidified.
••
It might be useful to define market failure early on this section of work. It can be defined as an
inefficient allocation of resources. However, those learners with a more nuanced understanding
of what that really means will be more successful in their analysis and evaluation of market failure
topics. The phrase inefficient allocation of resources is more than just an opportunity for rote
learning; instead, it is the economic idea that the sum of consumer and producer surplus (or social
surplus) are not maximised by the current allocation of resources.
••
The concepts of consumer and producer surplus (Chapter 11) demonstrate more than just an
opportunity to test whether learners can calculate the area of a triangle; instead, make sure that
learners see this is a way of measuring utility of consumers: how happy the consumers in a market
actually are.
••
It is important that learners can explain market failure in these technical terms – by always
referring back to the concepts of consumer and producer surplus and resource allocation. This
is particularly true when you start using concepts like overconsumption and underprovision.
Overconsumption can only be identified if you first identify the socially optimum level.
••
The term public goods can be used to reference two things and it is important to differentiate
between the economic concept (non-excludable and non-rival) and the colloquial phrase
(provided by the government).
Common misconceptions
Misconception
How to elicit
How to overcome
Learners often cannot
distinguish between the
concepts of non-rival and
non-excludable.
Take a particular good (e.g. flood
defences) and ask learners to explain
in what way it is non-excludable and
in what way it is non-rival.
Explain that non-excludability
occurs when once a good is
provided, anyone can access it
for free.
Explain that non-rivalry occurs
when one person’s consumption of
the good does not affect another
person’s (utility derived from the)
consumption of the same product.
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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: TEACHER’S RESOURCE
12.1 Market failure
LEARNING PLAN
Syllabus learning objectives
Learning intentions
Success criteria
3.1.1 addressing the nonprovision of public goods
• Explain why there is the
non-provision of public
goods.
• Understand the concept of
market failure.
3.1.2 addressing the overconsumption of demerit goods
and the under-consumption of
merit goods
3.1.3 controlling prices in
markets
• Explain why there is
overconsumption of
demerit goods and the
underconsumption of merit
goods.
• Explain why governments
control prices in markets.
• Explain why governments
may intervene in
markets to address
non-provision of public
goods, overconsumption
of demerit goods and
underconsumption of
merit goods.
• Analyse why governments
may set maximum prices
or minimum prices in
the market.
Starter idea
Categorising public goods (20 minutes)
Resources: Whiteboard
Description and purpose: The purpose of the lesson is to build on the learners’ knowledge from Chapter 6 and
transition them into the new material in Chapter 12. Ask your learners to define the key concepts of non-rival
and non-excludable to another learner. Then, after defining the concepts of non-rival and non-excludable, you
should write a list on the board of ten goods (some public and some private). Ask learners to identify a public
good from the list and then to justify why they have identified it as such.
The list should be: lighthouse, fireworks, banana, policing, cup of coffee, piano lesson, TV streaming
subscription, street lights, flood defences, laptop.
Answers:
Private goods: banana, cup of coffee, piano lesson, TV streaming subscription, laptop.
Private goods: lighthouse, street lights, flood defences, policing, fireworks
What to do next: Challenge your learners to think of the reason why a market economy might struggle to satisfy
people’s demand for those public goods they have identified.
Main teaching ideas
1
The underprovision of public goods (60 minutes)
Learning outcome: Explain why there is the non-provision of public goods.
Resources: Playing cards or different coloured counters
Description and purpose: Explain to learners that they represent a small village which is prone to flooding.
The government is refusing to build a flood control system so they need to come together to pay for it. None
of them is rich enough to pay for it on their own. They each have two playing cards (one red, one black) or
two counters of different colours. The red card is worth a set amount of money. The black card is worth
nothing. They each have a decision to make: fund the project or not. The flood control system requires twothirds of them to pay up (or a similar % if your class cannot be divided by 3). It does not require all of them
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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: TEACHER’S RESOURCE
to pay. Ask the learners to decide, without discussing with the other learners, if they want to contribute or not.
Depending on how you want to play: you can ask learners to submit their response in secret or just for them
all to reveal their decision at the same time.
Hopefully, this will elicit the concept of the free rider problem because some learners will try to get out of
paying. If not enough of them contribute, then the control system is not built and you have your example of
market failure (missing market). You could run this for several rounds, to see if the outcome changes.
Answers:
Learners’ own answers.
Differentiation ideas:
•
Support: You should ensure that you explain what the game is meant to show at the end: the free
rider problem.
•
Challenge: Ask learners what this says about people’s rational behaviour, whether the outcome is likely
to change over time and whether the government should try to intervene.
Assessment ideas: You can ask learners during the activity about the decision-making process they are
going through. This will allow you to gauge their understanding of the economic theory behind it. You
could also ask learners to write a short 300-word summary explaining why public goods often lead to
market failure.
2
Which system is better? (40 minutes + additional time for presentations)
Learning outcome: Explain why there is overconsumption of demerit goods and the underconsumption of
merit goods.
Resources: Think like an economist in Chapter 12 of the Coursebook, internet access
Description and purpose: The purpose of the activity is for learners to use their new knowledge about merit
goods in a new real-life context, while also improving their independent research skills. All learners should
read the Think like an economist feature in the Coursebook which about the healthcare system in Pakistan.
This will help your learners to become familiar with the issue of merit goods (in this case, healthcare) in a
real-life context.
In the next stage of the activity, you should direct learners to the GapMinder website. Learners should
plot healthcare spending variables (on the x-axis) against healthcare indicator variables (on the y-axis). For
example, learners might have key figures like total spending, spending per capita or the ratio of private to
public hospitals on the x-axis, and on the y-axis they might have life expectancy or infant mortality.
Learners should print off their charts or take screenshots of them for a class discussion.
In order to reinforce the learning outcome during that discussion, ask learners to present their findings;
also ask them whether they have found evidence that people should consume more (spend more
money on) healthcare.
Answers:
Learners’ own answers.
Differentiation ideas:
•
Support: Ask learners to complete the activity in a pair or ask them to only research one country
rather than several.
•
Challenge: Ask learners to critique the data. The key question is: to what extent is healthcare spending
the most important factor in determining healthcare outcomes in a country? Can they brainstorm
other factors?
Assessment idea: Award each presentation a mark out of five: 1 = not very well researched, some areas
of knowledge are unclear, 3 = research conducted to an acceptable standard and knowledge is good,
5 = extremely well researched and excellent knowledge of concepts demonstrated.
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CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS: TEACHER’S RESOURCE
3 Education, education, education (40 minutes)
Learning outcome: Explain why there is overconsumption of demerit goods and underconsumption of
merit goods.
Resources: Pen and paper
Description and purpose: The purpose for the lesson is to reinforce the learning outcome that merit goods
are under-consumed. Give each learner a survey with two questions:
1
What are the benefits to you of staying in school?
2
What are the benefits to the economy of you staying in school?
Learners should go round the class and ask each other the questions.
When learners have collected the data, they should categorise the common responses into two themes:
benefits to the individual and benefits to the economy.
You should ask learners to see if there are many overlaps between the two. For example, is the benefit to the
individual also the same benefit that the economy receives?
If it is not, then they should try to explain why education is likely to be under-consumed in a market
economy and what policies they could employ to try to increase participation in education.
Answers:
Suggested answers: Economic theory would suggest that people will tend to see the individual benefit as
‘higher wages’ whereas they will see the benefit to society as ‘innovation or scientific progress’. In other
words, people only consume education according to their own perceived benefits. Although they know that
education has a wider positive impact, they do not consume education for that reason.
Differentiation ideas:
•
Support: Pause the activity at the midway point and make sure you link the activity back to the ideas
of private benefits versus external benefits and the concept of market failure.
•
Challenge: If you have time and resources, then learners could ask a wider group of learners in the
school. Learners must write all the answers down that they receive.
Assessment idea: Walk around as they are conducting the survey to grade their participation. You can also
grade the learners on the quality of their data analysis at the end.
Plenary idea
Review (20 minutes)
Resources: Topic worksheet 12.1
Description and purpose: The purpose of the worksheet is to assess learners’ level of understanding on the
content from this chapter. The worksheet challenges learners to explain why certain examples fall into the
various categories of public, merit or demerit goods.
Assessment ideas: This is an ideal formative assessment. You should set this assignment at the end of the
chapter in class or for homework. Learners can submit their answers to you for marking.
Downloadable resources
Topic worksheet
12.1 Public, merit and demerit goods
The purpose of the worksheet is to assess the learners’ level of understanding on the content from this chapter.
The worksheet challenges learners to explain why certain examples fall into the various categories of public,
merit or demerit goods.
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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021